A federal appeals court Friday backed investors in a potential class-action lawsuit against promoters of a cryptocurrency that collapsed in 2018 after what judges described as a Ponzi scheme.
A three-judge panel of the 11th U.S. Circuit Court of Appeals overturned a decision by South Florida U.S. District Judge Donald Middlebrooks to dismiss the case involving the cryptocurrency platform BitConnect.
The appeals court said plaintiffs, who bought cryptocurrency, could pursue claims under part of a law known as the Securities Act of 1933.
The promoters of the cryptocurrency used YouTube videos to attract buyers.
“The marketers insist that they cannot be held liable because the Securities Act covers sales pitches to particular people, not communications directed to the public at large,” said the 14-page opinion, written by Judge Britt Grant and joined by Judges Elizabeth Branch and Ed Carnes.
“Not so — neither the Securities Act nor our precedent imposes that kind of limitation. Solicitation has long occurred through mass communications, and online videos are merely a new way of doing an old thing. Because the Securities Act provides no free pass for online solicitations, we reverse the district court’s dismissal” of claims under a section of the law.
Defendants in the case include Glenn Arcaro, who was described in the opinion as a national promoter who managed a team of regional promoters.
Friday’s ruling sent the case back to the district court.
The U.S. Department of Justice and the U.S. Securities & Exchange Commission also have taken action after the collapse of BitConnect.
The Justice Department, for example, said last year that Arcaro had pleaded guilty to participating in a conspiracy to defraud BitConnect investors.